Markets dangerously poised

Weak global cues weighed heavily on Indian markets

Indian markets slipped ahead of rate decisions from the European Central Bank and the Bank of England later in the day, and on the back of weak global cues. The Sensex closed at 16,225, down 271 points from the previous day’s close while the Nifty declined 87 points to close at 4,845. 

We had said yesterday that Indian markets will check their gains today and they did so. However, bourses are on an edge now. Check out 16,100 for support. If this level is breached, we may see a sharp downfall.

As per reports, the two top stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have decided to hold a special trading session on Saturday, 6 February 2010, as the NSE is testing an upgraded trading system. Trading will begin at 11:00 IST and end at 12:30 IST.

At 11:00 hrs IST the Sensex was trading at 16,378, down 118 points from the previous day’s close. However, at 13:00 hrs IST, the Sensex declined 107 points from the previous day’s close and was trading at 16,389.

At the end of the day, Housing Development Finance Corporation (HDFC) declined 3% after the RBI announced that it would disallow non-banking finance companies (NBFCs) and housing finance companies (HFCs) from resorting to short-term foreign currency borrowings.

The RBI cited prevailing macroeconomic conditions and improvements in domestic credit and liquidity conditions for this move. This is seen as part of the central bank’s efforts to gradually reverse its soft money policy.

Wipro Consumer Care and Lighting, the FMCG arm of Wipro, is reportedly in advanced talks to buy Nigeria-based skincare company Tura International. The stock was down 3%.

Telecom stocks declined on reports that the auction for the much-awaited 3G mobile phone services may not be held by 31 March 2010. Bharti Airtel fell 2% while Reliance Communications declined 4%.

Oil & Natural Gas Corporation rose 1% after a report from an expert group headed by Kirit Parikh on Tuesday suggested freeing petrol and diesel prices as well as raising LPG rates by Rs100 a cylinder and kerosene prices by Rs6 per litre. The Parikh committee’s suggestions, submitted to petroleum minister Murli Deora, would see a hike of Rs3 per litre in petrol and Rs3-Rs4 per litre hike in diesel, if implemented. GAIL India was up 3%.

Aurobindo Pharma has received the final approval for Cetirizine Hydrochloride Solution (1 mg/ml) from the US Food & Drug Administration (FDA). The stock was up 2%.

During trading hours, government data released showed that food inflation rose to 17.56% in the week ended 23 January 2010 from 17.40% in the previous week following rising prices of potato and pulses. The inflation for primary articles, which includes food and non-food items, marginally eased to 14.56% in the reporting week from 14.66% in the previous week. The fuel price index rose 5.88%.

During the day, Asia’s key benchmark indices in Taiwan, Hong Kong, Japan, China and Singapore were down by between 0.08%-1.84% while South Korea’s index rose 0.09%.

As per reports, Australia’s Bureau of Statistics said that retail sales in December 2009 sank 0.7% from November 2009. This was lower than median forecast of economists of a 0.2% gain.

On Wednesday, 3 February 2010, the Dow Jones Industrial Average and the S&P 500 fell 26 points and 6 points respectively on reports that the US president pledged to complete banking and healthcare reform while the Nasdaq Composite index rose 1 point.

As per US reports, the ISM Non-Manufacturing Index rose to 50.5 in January from 49.8 in December, but fell short of economists’ expectations of 51. On the jobs front, ADP reported that 22,000 jobs were lost from private payrolls in January.

However in premarket trading, the Dow was trading 53 points down.
 


 

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IMF says India to grow 8% in FY11

The Fund said that with India’s long-term prospects remaining strong and private sector balance sheets sound, it expects growth to be back on track in 2010-11 even if advanced economies grow below trend

The International Monetary Fund (IMF) said that it expects India to grow at 8% in FY11 from 6.75% in FY10 with expected momentum in non-agricultural gross domestic product (GDP).

In a note, under Article IV of the IMF's Articles of Agreement, the Fund said that with India’s long-term prospects remaining strong and private sector balance sheets sound, it expects growth to be back at potential in 2010-11 even if advanced economies grow below trend.

Private consumption would benefit from better employment prospects and less uncertainty, investment would be boosted by robust corporate profits, rising business confidence, and favourable financing conditions, the IMF said.

The Fund said that it sees India's merchandise exports increasing by 22.1% to $178 billion in FY11 from $145.80 billion estimated in FY10 and imports rising 20% to $310.80 billion in the next fiscal year.

India's near-term risks are broadly balanced, the Fund said, adding that an acceleration of reforms and capital inflows could spur investment in the country. However, there are key risks like elevated inflation and financing constraints arising from—among other things—the fiscal deficit, which could put breaks on the recovery, the IMF said.

Terming India's growth prospects in the medium-term as 'bright', the Fund said that the country was not at the centre of the global crisis and its growth is well-balanced and mainly reliant on domestic drivers. There could be some risks such as difficulties in implementing productivity-enhancing reforms and continued supply bottlenecks to this favourable outlook, the Fund warned.

Given long transmission lags and the low policy rates, most directors of the IMF advised a timely start of the withdrawal of monetary stimulus that would help anchor inflation expectations and soften the impact on long-term interest rates.

The IMF said that most of its directors considered that rupee appreciation would help contain inflation and manage capital inflows, although a few directors argued for caution in this area. Sterilised intervention could help reduce excessive exchange-rate volatility, provided it does not generate further inflows, the Fund said.

The directors of the IMF also stressed the importance of developing a vibrant corporate bond market and reforms that would foster greater participation by pension funds and the insurance sector in funding infrastructure.

 

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Shopper’s Stop says it’ll sustain growth in Q4

Shopper’s Stop hopes to touch double-digit like-to-like sales growth by Q4FY10 and is positive that it will maintain this momentum. A majority of retailers are witnessing improved footfalls

Shopper’s Stop Ltd has said that it is confident on sustaining its growth achieved during the third quarter of FY10 over the next quarter. It also hopes that its like-for-like sales will grow into double digits in Q4FY10.

“We are confident that we can sustain the same numbers in the next quarter also. In Q4FY10, we hope to see an increase in like-to-like sales growth which has almost touched double digits in Q3FY10. We will definitely be able to maintain earnings before interest, taxes, depreciation, and amortisation (EBITDA) between 7%-8.5%,” said Govind Shrikhande, president and chief executive officer of Shopper’s Stop.

During the third quarter to end-December, the retailer reported a net profit of Rs13.60 crore compared to a net loss of Rs3.10 crore in the same period a year ago. Its total revenues during the third quarter also rose to Rs421.10 crore on increase in average selling price and space additions.

During Q3FY10, the company registered EBITDA of Rs30.20 crore, a growth of 210% on a year- on-year basis, due to the combination of lowered operating costs, steady profit margins and increase in sales. 

For the past four years, the company claims that the third quarter has always reported good sales numbers due to the marriage and festival season. “This time also, our sales are up by 15% on a quarter-on-quarter basis,” said Mr Shrikhande.

Shopper’s Stop also reduced its electricity consumption by 14%. The company shifted to Tata Power from Reliance Infrastructure, which helped it to reduce electricity costs. It has also cut down on advertising. Last year, it had to spend around Rs14 crore on a logo change. The company has also cut down usage of office space by 15%.

A majority of retailers are witnessing improved footfalls and better conversion on the back of improved consumer sentiment. Like-to-like sales have seen strong growth for some large retailers. However, Shopper’s Stop’s like-to-like sales have been under pressure for the past two quarters.

“We expect the company’s top-line to grow by 19% in FY10 and operating margin to be at about 6.5%-6.8% in FY11. Shopper’s Stop has been able to turn around its operations over the past two quarters and is expected to deliver steady performance going forward,” said KR Choksey Shares and Securities Pvt Ltd, in a report.

Profitability of many retailers is likely to sustain due to the revival in fashion retailing and rebound in home retailing sales, which are poised to improve on account of revival in the real-estate sector. Expansion plans are back on track, at a slower pace and at strategic locations.

Shopper’s Stop has been able to hold the top-line steady, despite decline in conversion ratio and muted customer entry. However, the key concern still is de-growth in like-to-like sales for stores, indicating low brand loyalty, KR Choksey added.
 

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